Insufficient Entry and Consumer Search

Matsuoka Toshiki ()
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Matsuoka Toshiki: Graduate School of Economics, Kobe University, 2-1 Rokkodai, Nada, Kobe, Hyogo, 657-8501, Japan

The B.E. Journal of Theoretical Economics, 2023, vol. 23, issue 1, 245-258

Abstract: This study considers a search market with an outside option and shows that entry may be insufficient. When a firm enters the search market, the price decreases, and consumers can search for more products, which increases the market demand and improves social welfare. However, firms do not internalize the effect, and insufficient entry can occur. Additionally, insufficient entry is likely to occur in a search market with low search costs and/or an attractive outside option, as these factors increase the socially optimal number of firms but decrease the firms’ profits.

Keywords: consumer search; free entry; insufficient entry (search for similar items in EconPapers)
JEL-codes: D43 D83 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/bejte-2020-0087

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